Government-Sponsored Enterprises and the Proposed Resolution Funding Corporation

GAO discussed government-sponsored enterprises (GSE) and the Resolution Funding Corporation (REFCORP), which would help resolve the current savings and loan association crisis, focusing on: (1) an overview of GSE; (2) budgetary treatment of GSE; and (3) whether REFCORP should be treated as an on-budget federal corporation or off-budget GSE. GAO found that: (1) there are 10 GSE currently operating nationally, partially financing their activities by selling securities; (2) most GSE received lines of credit with the Department of the Treasury and were exempted from securities regulation; (3) GSE activities are not covered by deficit reduction legislation because they are privately owned; and (4) REFCORP would be treated like other GSE and its budget would be excluded from the government's budget totals. GAO believes that: (1) the proposed off-budget approach would minimize short-term impact on the budget deficit, but would increase Treasury's long-term interest costs; and (2) REFCORP should be established as GSE because of its composition and business transactions, and should be on-budget as a federal corporation because it would raise funds to satisfy federal obligations, and rely on tax-like collections from industry sources.